CHESTER — Chester Upland School District Receiver Joe Watkins approved a preliminary budget for the 2014-2015 fiscal year that calls for more than $123 million in spending and a 3.4 percent tax increase.

“Our fiscal challenges continue,” said Chief Financial Officer George Crawford at the receiver’s meeting on May 29, where the $123,211,860 spending plan was announced.

While the budget calls for a less than 1 percent increase in spending over last year’s budget, the tax increase is mandated by the district’s recovery plan. The district must raise the tax rate according to the state’s Act 1 index.

If the tax increase goes into effect, the millage rate for the City of Chester would increase to 56.348 mills, and would increase to 25.943 mills for Upland Borough and Chester Township. A property assessed at $50,000 would pay $2,817 in the City of Chester, while a property assessed at the same value would owe $1,297 in Upland and Chester Township.

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Increased contributions to the state’s Public School Employees’ Retirement System and skyrocketing health care premiums account for nearly $2 million in spending increases over last year.

“The contribution rate (for PSERS) is actually going up almost 24 percent,” Crawford said. “That represents an approximately $860,000 increase ... Health insurance premiums will increase by about 17 percent, or $1 million, when the increases have typically been 3 percent to 5 percent each year.”

Over the last year, the school district has reduced the number of administrative staff through layoffs and attrition. Watkins hopes that more employees will take advantage of an early retirement program offered by the district.

“We certainly hope that some people will take advantage of the early retirement incentive plan,” Watkins said. “With that we think we have a chance to save some money.”

An offering letter was distributed to eligible staff at the beginning of June, with a deadline of June 9 to express interest in participating.

The increased costs are coupled with a drastic reduction in property values that have led to a lower tax assessment.

“The taxable assessed value in the city has declined significantly over the last year,” Crawford said.

The reduction amounts to nearly $1 million, but the tax increase will net a projected $15,695,452 in real estate taxes. Budget projections indicate that about $13.1 million will be collected in 2013-2014 real estate taxes, for an increas of about $2.5 million.

The budget process began with an operating deficit of $23 million, and Watkins said that about $5 million of that was eliminated in the preliminary budget.

“We are hoping we can find another $5 million to get to a net reduction of $10 million,” Watkins said. “We have a structural problem. We can’t control the charter school costs.”

Watkins and Crawford hope to reduce the payments to charter schools by enticing students back to the Chester Upland School District.

“That’s the easiest way to fix this,” Watkins said.

Under the tutelage of Superintendent Gregory Shannon, who finished his first school year at the district’s helm this month, Watkins reported that violent incidents are down significantly.

“We’ve made it a safer school district. Violent incidents are down by 70 percent districtwide, and down 40 percent at the high school,” Watkins said. “We are doing what the recovery plan mandates.”

Adding to the uncertainty is the timing of the state budget process, which coincides with the school district’s budget deadline. Until Chester Upland officials know the level of funding from the state, they can’t be certain of spending levels.

“This next month will help us determine what we will be receiving in terms of state funding,” Crawford said.

A special receiver’s meeting is scheduled for 6 p.m. June 30 for approval of the final budget.